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By Alexandra WilsonPublished: Jun 30, 2014

Patent Litigation: Fewer, But Bigger Awards

Patent litigation: There’s a lot of it, but not all of it is created equal. So says the “Patent Litigation Damages Report,” the first edition of a study that Menlo Park, Calif.-based legal analytics company Lex Machina released Wednesday.

The study looked at all 36,629 patent cases filed and terminated in the U.S. from 2000 to 2013. The majority of cases involved patent disputes over technology, pharmaceuticals and genetically modified organisms (GMOs).

Findings in the study focused on district courts and did not account for changing damages resulting from appeals. It also excluded cross-category damage awards, so for example the highly publicized Apple v. Samsung case was not included because the award included trade dress infringement.

Awards Are in Minority

The survey found that in the past 14 years, only 708 cases involved compensatory damage awards. That means fewer than 2 percent of all patent infringement cases were successful.

“When you look at the averages and the medians, the major takeaway is that it’s really hard to win, and it’s even harder to win one of size,” Lex Machina chief evangelist and GC Owen Byrd told CorpCounsel.com. “Defendants should be using this data to convince plaintiffs to settle.”

According to Byrd, the typical patent case takes $3 million to $4 million. The high cost and low likelihood of winning create a strong argument for pursuing out-of-court settlements in patent matters.

Recent Increase in Total Awards, Lost Profits Awards

The study did have some good news for plaintiffs: Recent years have seen a rise in the total amount of damages awarded. All three of the cases in the study with awards of $1 billion or more (Centocor v. Abbott Laboratories, Carnegie Mellon University v. Marvell and Monsanto v. DuPont) occurred in the last five years.

“The total amount of damages awarded in patent cases is going up,” said Byrd. “Damage awards are an increasing reality in patent litigation and something we have to pay close attention to.”

The study also suggests that lost-profits damages awards are on the rise. Though the more-typical reasonable royalties awards still account for the majority of damage awards, lost profits are becoming an increasing liability.

For example, Centocor v. Abbott Laboratories, with an award of more than $1.6 billion in 2009, attributed $1.1 billion of the award to lost-profits damages. Byrd said litigators should pay close attention to this trend in order to adapt their cases to the nuances of lost-profits damages.

Where to Win

The bulk of successful compensatory damages awards came from the Eastern District of Texas. The district accounted for 84 cases and $5 billion in awards. This finding is unsurprising, as the area has become famous as the center of patent litigation.

Additionally, four of the seven top judges in terms of total compensatory damages awards were located in the Eastern District of Texas. U.S. District Judge Michael Schneider was responsible for 9 cases with $2.3 billion in total awards. His colleague U.S. District Judge T. John Ward awarded just over $1 billion in 19 cases.

“It confirms the general belief in the patent bar that the Eastern District is the place to go, but there are other districts that matter as well,” said Byrd.

The study said that other districts have become the center of big settlements. In the list of judges with the highest median compensatory damages, which is topped by U.S. District Judge Marilyn Huff from the Southern District of California with $188 million, there isn’t a single judge from the Eastern District of Texas.

Who Is Winning

The final section of the study provides information on which law firms are winning these cases, how many cases they have won and how much they have won. And general counsel looking to hire outside firms to handle patent litigation might be surprised by the report’s findings.

It won’t come as a shock that bigger law firms are dominating in terms of total numbers of cases and awards. Husch Blackwell has successfully tried 45 cases and amassed more than $1 billion in total compensatory damages. McKool Smith has successfully terminated 23 cases and amassed more than $2 billion in total compensatory damages.

But while smaller firms might not lead in total wins, they are fairing well in terms of significant settlements. There are only three firms that have won more than $60 million per case—and all three are smaller firms. Caldwell Cassady & Curry, a firm with 10 attorneys, topped the list with $80.8 million per case and seven cases successfully terminated.

“If you look at the top law firms that have won compensatory damages [per terminated case], the takeaway from that is that these are smaller, more local and regional firms,” said Byrd.